The Week Ahead

During the week ahead the market is likely to look towards a number of key market themes and events which have the potential to indicate financial market moves.

The economic calendar is jammed packed with important events and releases this week. The release of the US CPI inflation report and the Bank of England rate decision headline.

US CPI Report

This week the US CPI report takes on another layer of significance after the recent FOMC policy statement showed that the US central is in “data dependent mode” in regard to rate hikes.

The consensus is for the consumer prices to rise 0.4% month on month in April, accelerating from the +0.1% pace in March, while the annual measure is seen ticking up by 0.2ppts to 5.2% year on year.

The core rate of inflation is expected to rise 0.3% month on month moderating slightly from +0.4% month on month in March, while the annual rate of core inflation is seen unchanged at 5.6% year on year.

Notably, Credit Suisse says core goods inflation will increase, with higher used auto prices from Q1 showing up in the CPI this month, while inflation in other goods categories is expected to remain flat.

The bank adds that “a reading in-line with our expectations would remain uncomfortably high for the Fed but is still consistent with gradual disinflation this year once shelter rolls over more significantly.”

Bank of England interest rate decision

Most economists expect that the Bank of England will deliver a 25-basis point hike this week, with the market pricing concurs with economists as 25 basis points is priced at around 85%.

Data since March has leaned hawkishly with headline Y/Y CPI printing at 10.1%, which was 0.9pp above the MPC’s forecast, and the core rate at 6.2% vs. the MPC’s projection of 5.8%.

Oxford Economics suggests another 7-2 decision with Dhingra and Tenreyro the lone dissenters. If this is the case it may be difficult to gauge the reaction in sterling and the UK100.

As it stands, the market pricing puts the terminal rate at around 4.75%, which would imply another 25-basis point hike beyond next week.